Friday, February 21, 2014

Engineering in the Century of Slow Growth

The United States achieved a 2.0
percent average annual growth rate of real GDP per capita between 1891 and
2007. This paper predicts that growth in the 25 to 40 years after 2007 will be
much slower, particularly for the great majority of the population. Future
growth will be 1.3 percent per annum for labor productivity in the total
economy, 0.9 percent for output per capita, 0.4 percent for real income per
capita of the bottom 99 percent of the income distribution, and 0.2 percent for
the real disposable income of that group.

The primary cause of this growth
slowdown is a set of four headwinds, all of them widely recognized and
uncontroversial. Demographic shifts will reduce hours worked per capita, due
not just to the retirement of the baby boom generation but also as a result of
an exit from the labor force both of youth and prime-age adults. Educational
attainment, a central driver of growth over the past century, stagnates at a
plateau as the U.S. sinks lower in the world league tables of high school and
college completion rates. Inequality continues to increase, resulting in real
income growth for the bottom 99 percent of the income distribution that is
fully half a point per year below the average growth of all incomes. A
projected long-term increase in the ratio of debt to GDP at all levels of
government will inevitably lead to more rapid growth in tax revenues and/or
slower growth in transfer payments at some point within the next several
decades.

There is no need to forecast any
slowdown in the pace of future innovation for this gloomy forecast to come
true, because that slowdown already occurred four decades ago. In the eight
decades before 1972 labor productivity grew at an average rate 0.8 percent per
year faster than in the four decades since 1972. While no forecast of a future
slowdown of innovation is needed, skepticism is offered here, particularly
about the techno-optimists who currently believe that we are at a point of
inflection leading to faster technological change. The paper offers several
historical examples showing that the future of technology can be forecast 50 or
even 100 years in advance and assesses widely discussed innovations anticipated
to occur over the next few decades, including medical research, small robots,
3-D printing, big data, driverless vehicles, and oil-gas fracking.